The Pensions Regulator

Pensions Regulator sets out approach to scheme funding requirements

Ref: PN05-31
31 October 2005

A consultation document describing how the Pensions Regulator plans to regulate new funding requirements for defined benefit schemes has been published today.

The regulator's approach will be specific to the circumstances of the scheme, focussed on schemes that pose the greatest risk to members' benefits, and proportionate to the ability of the employer to fund a realistic recovery plan.

The document sets out our approach to identifying schemes at risk, and how the regulator intends to set triggers as the mechanism for triggering our attention.

Key variables in setting triggers will be the funding objective of the scheme and the length of the recovery plan, and we recognise that where triggers are set will impact upon the way in which trustees and employers shape their recovery plan.

Trigger points are proposed to be related to PPF and FRS17 figures for typical schemes, and there will be separate triggers for schemes with recovery plans longer than 10 years.

The consultation document also sets out the regulator's powers and when it will consider intervening. It has been published at an early stage to guide trustees and allow the opportunity for comment.

The Pensions Regulator's strategic development director Charlie Massey said: "Our proposals seek to protect scheme members and the PPF while taking into account the circumstances of the scheme and sponsoring employer.

"We encourage the pensions industry to take part in the consultation and give their views on the way we intend to implement the new scheme funding requirements. It is particularly important that trustees comment on and understand the regulator's approach, as they will play a key role in implementing the new regime."

The consultation will last for 12 weeks. A formal statement on the regulator's regulatory approach and use of powers will be published in early 2006.

To take part in the consultation visit: www.thepensionsregulator.gov.uk

Editor's notes

1. The Pensions Regulator's Funding defined benefits code of practice will be made available on www.thepensionsregulator.gov.uk as soon as it is laid before Parliament in December, along with specimen funding documents designed to assist trustees and their advisers.
2. The new scheme funding requirements are part of wider reforms set out in the Pensions Act 2004. Elements of the scheme funding provisions take account of the funding requirements in Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision
3. The DWP regulations replace the minimum funding requirement (MFR) and will now come into force on 30 December 2005. The new requirements will apply to valuations based on an effective date of 22 September 2005 onwards but completed after 30 December 2005. Trustees beginning their valuation between 22 September and 30 December will have 18 months to complete their valuation and put in place an updated schedule of contributions, instead of the usual 15 months.
4. The Pensions Regulator has been established as the new regulator of work-based pensions in the UK, with wider and more flexible powers under the Pensions Act 2004. It has replaced Opra which no longer exists.
5. The new powers of the Pensions Regulator include the ability to:
6. • collect more detailed scheme information;
   • impose a statutory obligation on 'whistleblowers' to report suspected breaches of the legislation to the regulator;
   • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
   • freeze a scheme that is at risk, while the regulator investigates; and
   • prohibit trustees who are judged not fit and proper to carry out their duties.